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Are You Suffering From Business Debt? A CVA May Help

Mike Field

saving a piggy bank from going underwaterA Company Voluntary Arrangement (CVA) is in simple terms is a solution to prevent company liquidation. It is an arrangement between your company and its creditors allowing the business to pay back an affordable proportion of the debts to creditors over a period of up to 5 years, with the unpaid balance being written off including any unaffordable VAT and PAYE arrears.

CVAs are ideal for viable but insolvent businesses that have the potential to turnaround and become successful. They are especially valuable when your business has been issued a winding up petition, but you will need to act quickly to start the CVA process. Even with all of these benefits in mind there are still many negative myths and untruths circulating about the success of a CVA, so I thought it was important to separate fact from fiction.

“Creditors think CVAs don’t work”

It is true that a badly thought through a CVA, or a CVA for companies that are fundamentally flawed don’t work. However, if the time is taken to assess the viability of the company, and creditors are presented with a sensibly drafted proposal, a CVA will work and is often a much better outcome for creditors.

In my experience, in circumstances where a well prepared proposal is agreed by creditors for a genuinely viable business, the majority do succeed and creditors receive a better outcome than if the company had ceased trading and been placed into liquidation.

“Our creditors will not continue to supply us”

Actually turn that statement around and ask ‘why wouldn’t they?’. Like you, suppliers need customers to maintain their level of turnover and more now than ever the customer is king.  A well drafted CVA proposal will explain to them why the company is proposing a CVA, what they are likely to receive from the arrangement and how the business is able to make profits in the future. Importantly they will see that they can benefit by being one of its suppliers.

It is important to engage with key suppliers at an early stage, communication makes a massive difference to the relationship. Some suppliers may not offer you the credit terms that you enjoyed previously, but once the trust is built back up, our experience is that the credit offered increases. In the meantime, if you have frozen payment of the old date, you will have access to cash from your customers to pay your suppliers for new goods on a pro forma basis.

Don’t lose sight of the fact that the suppliers need the company to survive, to ensure the CVA delivers the return back to them as creditors and therefore it is in their interests to support the ongoing business.

“HMRC do not like voluntary arrangements”

HMRC consider CVA proposals centrally in a specialist unit and they do have a standard set of requirements that they expect to see in the proposals, but they do also consider the proposal on its merits. As long as the proposal can demonstrate that the business is viable going forward and offers a significantly better return to creditors than in liquidation they are likely to support the proposal.

There are two additional key factors to consider in relation to HMRC’s support.

  1. Is the company up to date with its compliance, ie filing its tax returns, and will it continue to do so for the life of the CVA?
  2. Will the company keep up to date with its future tax payments?

As long as the company does not fall foul of these two points above and complies with the terms of the CVA, HMRC typically support voluntary arrangements.

“The bank will call in their debt”

It is important that as part of a joint approach to the CVA that you discuss your plans and CVA proposals with the bank and any other key stakeholders, at an early stage, especially if the bank has security over the assets of the company for its lending.

Banks generally are supportive of (well thought through) CVAs for businesses that can demonstrate that they are viable. It keeps the value of the business as a going concern and therefore the value of the assets over which they may have security, whereas they could be looking at a shortfall in a liquidation situation.

It also avoids the media attention on the bank if they were to appoint administrators to protect their position where administration is likely to be the alternative route if the CVA is not to be accepted by them or creditors.

One very important consideration as regards the bank and CVAs is that a CVA can prevent personal guarantees being called upon, thereby preventing the guarantors from being required to repay a potentially significant company debt out of personal assets.

“Our customers will not support us”

It is important to carry out an assessment of the likely reaction from customers when preparing the CVA proposals as this is an important factor in the viability of a CVA.

In many cases customers will simply not be aware that the company is even in a voluntary arrangement as the CVA is an arrangement solely between the company and its creditors.

Where they are aware, provided that they are reassured it is unlikely they will want the hassle of finding new suppliers. If they trust you and you have not let them down, why would they now consider you to be more of a risk, now that you have a formal plan in place to deal with historic debts and more importantly, why are you more of a risk than your competitors who have not restructured their debts?

They also may not be able to re-source quickly, so actually the power may be in your hands and you may have more of a hold over them than you think.

One question I am often asked is “should we tell our customers?” and there is no black or white answer to the question, it depends on the circumstances. Some customers appreciate being kept informed and continue to support the business, others have no real interest. It is dependent on the type of business and the relationship you have with your customers. If you are in doubt it is usually simplest to tackle the issue head on and I have not found this to be a particular problem.

Rather than fire fighting irate creditor calls, the CVA will allow you time to focus on developing existing and new customer relationships and you often find that your business is now actually winning more new work as you have time to concentrate on taking the business forward.

“Our staff will leave”

We very rarely hear of staff resigning when they find out what is happening. For a start, they would lose all potential redundancy entitlements and employee benefits. They may not easily be able to find alternative employment and would be unlikely to be eligible for government benefits such as job seekers allowance.

My advice is to plan to meet with the staff as part of the process, to explain what is happening and how it impacts them. The key is usually to be open an honest. Once the position is explained to them, they are usually supportive and helpful.

“I have to pay 100p in the £ to my creditors”

This is simply not the case. The business should offer what it can realistically afford to contribute to creditors from its future profits. If this is more than creditors are likely to receive in a liquidation of the company, creditors are likely to support the proposal.

Importantly, there is no minimum time frame for a CVA, but the length is generally limited to no more than five years and I would usually press for no more than three. If the contributions proposed amount to, say, 40p in the £ over that period then that is the amount creditors receive. The remainder of the debt, so 60% in this example, is written off.

Don’t rely on the advice from the man in the pub, talk to a trusted expert for the facts.

CVAs do work and creditors do support them if the business is viable and the proposals themselves are sensible.

Contrary to the myths, my experience is that there are many advantages to CVAs, and they do work and creditors do support them if the business is viable and the proposals themselves are sensible.

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Mike is a business recovery specialist. He started work in the Business Recovery profession in 1987 and has continued to pursue an ethos of working with distressed businesses to help them overcome their financial problems. As an Associate of Cashsolv, he offers advice and support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business.

Website: www.cashsolv.co.uk

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About mikefield

Mike is a business recovery specialist. He started work in the Business Recovery profession in 1987 and has continued to pursue an ethos of working with distressed businesses to help them overcome their financial problems. As a Client Director of Cashsolv, he offers advice and support to overcome cash flow problems and identify possible underlying problems that can be addressed to ensure a positive future for your business.

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The Future Of Supplier Collaboration: 9 Things CPOs Want Their Managers To Know Now

Sundar Kamak

As a sourcing or procurement manager, you may think there’s nothing new about supplier collaboration. Your chief procurement officer (CPO) most likely disagrees.
Forward-thinking CPOs acknowledge the benefit of supplier partnerships. They not only value collaboration, but require a revolution in how their buying organization conducts its business and operations. “Procurement must start looking to suppliers for inspiration and new capability, stop prescribing specifications and start tapping into the expertise of suppliers,” writes David Rae in Procurement Leaders. The CEO expects it of your CPO, and your CPO expects it of you. For sourcing managers, this can be a lot of pressure.

Here are nine things your CPO wants you to know about how supplier collaboration is changing – and why it matters to your company’s future and your own future.

1. The need for supplier collaboration in procurement is greater than ever

Over half (65%) of procurement practitioners say procurement at their company is becoming more collaborative with suppliers, according to The Future of Procurement, Making Collaboration Pay Off, by Oxford Economics. Why? Because the pace of business has increased exponentially, and businesses must be able to respond to new market demands with agility and innovation. In this climate, buyers are relying on suppliers more than ever before. And buyers aren’t collaborating with suppliers merely as providers of materials and goods, but as strategic partners that can help create products that are competitive differentiators.

Supplier collaboration itself isn’t new. What’s new is that it’s taken on a much greater urgency and importance.

2. You’re probably not realizing the full collective power of your supplier relationships

Supplier collaboration has always been a function of maintaining a delicate balance between demand and supply. For the most part, the primary focus of the supplier relationship is ensuring the right materials are available at the right time and location. However, sourcing managers with a narrow focus on delivery are missing out on one of the greatest advantages of forging collaborative supplier partnerships: an opportunity to drive synergies that are otherwise perceived as impossible within the confines of the business. The game-changer is when you drive those synergies with thousands, not hundreds of suppliers. Look at the Apple Store as a prime example of collaboration en masse. Without the apps, the iPhone is just another ordinary phone!

3. Collaboration comes in more than one flavor

Suppliers don’t just collaborate with you to provide a critical component or service. They also work with your engineers to help ensure costs are optimized from the buyer’s perspective as well as the supplier’s side. They may even take over the provisioning of an entire end-to-end solution. Or co-design with your R&D team through joint research and development. These forms of collaboration aren’t new, but they are becoming more common and more critical. And they are becoming more impactful, because once you start extending any of these collaboration models to more and more suppliers, your capabilities as a business increase by orders of magnitude. If one good supplier can enable your company to build its brand, expand its reach, and establish its position as a market leader – imagine what’s possible when you work collaboratively with hundreds or thousands of suppliers.

4. Keeping product sustainability top of mind pays off

Facing increasing demand for sustainable products and production, companies are relying on suppliers to answer this new market requirement.

As a sourcing manager, you may need to go outside your comfort zone to think about new, innovative ways to collaborate for achieving sustainability. Recently, I heard from an acquaintance who is a CPO of a leading services company. His organization is currently collaborating with one of the largest suppliers in the world to adhere to regulatory mandates and consumer demand for “lean and green” lightbulbs. Although this approach was interesting to me, what really struck me was his observation on how this co-innovation with the supplier is spawning cost and resource optimization and the delivery of competitive products. As reported by Andrew Winston in The Harvard Business Review, Target and Walmart partnered to launch the Personal Care Sustainability Summit last year. So even competitors are collaborating with each other and with their suppliers in the name of sustainability.

5. Co-marketing is a win-win

Look at your list of suppliers. Does anyone have a brand that is bigger than your company’s? Believe it or not, almost all of us do. So why not seize the opportunity to raise your and your supplier’s brand profile in the marketplace?

Take Intel, for example. The laptop you’re working on right now may very well have an “Intel inside” sticker on it. That’s co-marketing at work. Consistently ranked as one of the world’s top 100 most valuable brands by Millward Brown Optimor, this largest supplier of microprocessors is world-renowned for its technology and innovation. For many companies that buy supplies from Intel, the decision to co-market is a strategic approach to convey that the product is reliable and provides real value for their computing needs.

6. Suppliers get to choose their customers, too

Increased competition for high-performing suppliers is changing the way procurement operates, say 58% of procurement executives in the Oxford Economics study. Buyers have a responsibility to the supplier – and to their CEO – to be a customer of choice. When the economy is going well, you might be able to dictate the supplier’s goods and services – and sometimes even the service delivery model. When times get tough (and they can very quickly), suppliers will typically reevaluate your organization’s needs to see whether they can continue service in a fiscally responsible manner. To secure suppliers’ attention in favorable and challenging economic conditions, your organization should establish collaborative and mutually productive partnerships with them.

7. Suppliers can help simplify operations

Cost optimization will always be one of your performance metrics; however, that is only one small part of the entire puzzle. What will help your organization get noticed is leveraging the supplier relationship to innovate new and better ways of managing the product line and operating the business while balancing risk and cost optimization. Ask yourself: Which functions are no longer needed? Can they be outsourced to a supplier that can perform them better? What can be automated?

8. Suppliers have a better grasp of your sourcing categories than you do

Understand your category like never before so that your organization can realize the full potential of its supplier investments while delivering products that are consistent and of high quality. How? By leveraging the wisdom of your suppliers. To be blunt: they know more than you do. Tap into that knowledge to gain a solid understanding of the product, market category, suppliers’ capabilities, and shifting dynamics in the industry, If a buyer does not understand these areas deeply, no amount of collaboration will empower a supplier to help your company innovate as well as optimize costs and resources.

9. Remember that there’s something in it for you as well

All of us want to do strategic, impactful work. Sourcing managers with aspirations of becoming CPOs should move beyond writing contracts and pushing PO requests by building strategic procurement skill sets. For example, a working knowledge in analytics allows you to choose suppliers that can shape the market and help a product succeed – and can catch the eye of the senior leadership team.

Sundar Kamak is global vice president of solutions marketing at Ariba, an SAP company.

For more on supplier collaboration, read Making Collaboration Pay Off, part of a series on the Future of Procurement, by Oxford Economics.

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Sundar Kamak

About Sundar Kamak

Sundar Kamak is the Vice President of Products & Innovation at SAP Ariba. He is an accomplished Solutions Marketing and Product Management Execuive with 15 + year's broad experience in product strategy, positioning, SaaS, Freemium offering, go-to-market planning and execution.

The CFO Role In 2020

Estelle Lagorce

African American businessman looking out office window --- Image by © Mark Edward Atkinson/Blend Images/CorbisThe role of the CFO is undergoing a serious transformation, and CFOs can expect their role to continue to evolve, according to a recent CFO.com article by Deloitte COO and CFO Frank Friedman.

In the futurist article, Friedman says one of the biggest factors that will contribute to the CFO’s significant change over the next five years is technology.

Digital technology is obviously expected to drive change in high-tech companies, but Friedman says it’s industries outside of the tech sectors that are of particular interest, as they struggle to understand how to grasp and harness the digital capabilities available to them.

Working with high tech in low-tech industries

Five years from now, a finance team may be defined by how well it uses technology and innovative business tools, regardless of what industry it’s in. The article outlines some examples of ways that digital technology will increasingly be used by CFOs in “non-tech” sectors:

  • Predictive analytics: CFOs in manufacturing companies can forecast results and produce revenue predictions based on customer-experience profiles and current demand, instead of comparing to previous years as most companies still do today.
  • Social media and crowdsourcing: You may not think CFOs spend a lot of time on social media or crowdsourcing sites, but these methods can actually expedite finance processes, such as month-end responsibilities of the finance organization.
  • Big Data: CFOs already have a lot of data at their fingertips, but in 2020 they will have even more. CFOs in both tech and non-tech sectors who understand how to use that data to make valuable, informed decisions, can strategically guide their company and industry in a more digitally oriented world.

To do this, Friedman says CFOs can lead the way by addressing some critical areas:

  1. Know the issues: Gather the key questions that leaders expect Big Data analytics to answer.
  1. Make data easily accessible: Collect data that is manageable and easy to access.
  1. Broaden skills: The finance team needs people with the skills to understand and strategically interpret the data available to them.

The tech-savvy CFO

The role of today’s CFO has already expanded to include strategic corporate growth advice as well as managing the bottom line. In 2020, Friedman says expectations placed on the CFO are presumed to be even greater, and CFOs will likely need a much more diverse, multidisciplinary skill set to meet those demands.

The article details several traits and skills that CFOs will need in order to keep up with the pace of digital change in their role.

  1. Digital knowledge: CFOs must be tech-savvy in order to capitalize on technical innovations that will benefit their company and their industry as a whole.
  1. Data-driven execution: CFOs will need the ability to execute company strategy and operations decisions based on data-driven insights.
  1. Regulatory compliance: Regulations continue to be more stringent globally, so CFOs will need to be proficient at working closely with regulators and compliance systems.
  1. Risk management: With the growing global economy comes increased cyber and geopolitical risks worldwide. The CFOs of 2020, especially those in large multinational organizations, will need to have the expertise to monitor and manage risk in areas that may be unforeseen today.

The future CFO’s well-rounded resume

By 2020, the CFO role will require much more than just an accounting background. According to Deloitte’s Frank Friedman, “CFOs may need to bring a much more multidisciplinary skill set to the job as well as broader career experiences, from working overseas to holding positions in sales and marketing, and even running a business unit.”

So if you’re a current or aspiring CFO, you have five years to round out your resume with the necessary skills to be ready for the digitally driven role of the CFO in 2020.

The above information is based on the CFO.com article What Will the CFO Role Look Like In 2020?” by Deloitte COO & CFO, Frank Friedman – Copyright © 2015 CFO.com.

Want to learn more about best practices for transforming your finance organization? View the SAP/Deloitte Webinar, “Reshaping the Finance Function”.

For an in-depth look at digital technology’s role in business transformation, download the SAP eBook, The Digital Economy: Reinventing the Business World.

To learn more about the business and technology factors driving digital disruption, download the SAP eBook, Digital Disruption: How Digital Technology is Transforming Our World.

To read more CFO insights from a tech industry perspective, read the Wall Street Journal article with SAP CFO Luka Mucic: Driving Insight with In-memory Technology.

Discover 7 Questions CFOs Should Ask Themselves About Cyber Security.

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Estelle Lagorce

About Estelle Lagorce

Estelle Lagorce is the Director, Global Partner Marketing, at SAP. She leads the global planning, successful implementation and business impact of integrated marketing programs with top global Strategic Partner across priority regions and countries (demand generation, thought leadership).

Running Future Cities on Blockchain

Dan Wellers , Raimund Gross and Ulrich Scholl

Building on the Blockchain Framework

Some experts say these seemingly far-future speculations about the possibilities of combining technologies using blockchain are actually both inevitable and imminent:


Democratizing design and manufacturing by enabling individuals and small businesses to buy, sell, share, and digitally remix products affordably while protecting intellectual property rights.
Decentralizing warehousing and logistics by combining autonomous vehicles, 3D printers, and smart contracts to optimize delivery of products and materials, and even to create them on site as needed.
Distributing commerce by mixing virtual reality, 3D scanning and printing, self-driving vehicles, and artificial intelligence into immersive, personalized, on-demand shopping experiences that still protect buyers’ personal and proprietary data.

The City of the Future

Imagine that every agency, building, office, residence, and piece of infrastructure has an entry on a blockchain used as a city’s digital ledger. This “digital twin” could transform the delivery of city services.

For example:

  • Property owners could easily monetize assets by renting rooms, selling solar power back to the grid, and more.
  • Utilities could use customer data and AIs to make energy-saving recommendations, and smart contracts to automatically adjust power usage for greater efficiency.
  • Embedded sensors could sense problems (like a water main break) and alert an AI to send a technician with the right parts, tools, and training.
  • Autonomous vehicles could route themselves to open parking spaces or charging stations, and pay for services safely and automatically.
  • Cities could improve traffic monitoring and routing, saving commuters’ time and fuel while increasing productivity.

Every interaction would be transparent and verifiable, providing more data to analyze for future improvements.


Welcome to the Next Industrial Revolution

When exponential technologies intersect and combine, transformation happens on a massive scale. It’s time to start thinking through outcomes in a disciplined, proactive way to prepare for a future we’re only just beginning to imagine.

Download the executive brief Running Future Cities on Blockchain.


Read the full article Pulling Cities Into The Future With Blockchain

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About Dan Wellers

Dan Wellers is founder and leader of Digital Futures at SAP, a strategic insights and thought leadership discipline that explores how digital technologies drive exponential change in business and society.

Raimund Gross

About Raimund Gross

Raimund Gross is a solution architect and futurist at SAP Innovation Center Network, where he evaluates emerging technologies and trends to address the challenges of businesses arising from digitization. He is currently evaluating the impact of blockchain for SAP and our enterprise customers.

Ulrich Scholl

About Ulrich Scholl

Ulrich Scholl is Vice President of Industry Cloud and Custom Development at SAP. In this role, Ulrich discovers and implements best practices to help further the understanding and adoption of the SAP portfolio of industry cloud innovations.

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Culture: More Than Just An HR Thing

Shane Green

“Company culture shapes every minute of the workday and every decision that is made.” -Taylor Smith, CEO & Cofounder of Blueboard.

What is culture? I consider it the collective mindset and attitude of your employees about what they do, which manifests itself in how they do things—in other words, their actions and behaviors. These behaviors manifest themselves in their interactions with your company, your customers, and other associates or staff.

This mindset—the one your staff brings to work every day—determines how they will take care of your customers, how much effort they will put into their work, and whether or not they will stay with you long-term.

The mindset and attitude of your employees plays a significant role in how they will perform at work. How someone feels about coming to work affects his or her energy levels and cognitive abilities. The impact of a negative culture is tremendous. It can lead to poor customer interactions, high turnover, underperforming staff, and in turn, reduced profits. Depending on the size of your company, the cost could be thousands, millions, or even billions of dollars.

The research is clear across industries: When your employees are more positive, your company is more productive and profitable. According to a Gallup study from 2012, organizations with engaged employees are:

  • 10% more customer service-oriented
  • 21% more productive
  • 22% more profitable

When you consider the numbers, culture is the most important consideration in business today. And as a result, we should reconsider the position and idea that culture is only the responsibility of your human resources team. Culture must be the focus and responsibility of every executive, owner, and manager in your company.

I often hear owners, executives, and managers argue against investing in their staff. Here are a few of the arguments I hear most frequently:

  • We need to remain focused on our customers and their experience. After all, we are in the customer experience economy. While customers are important, I would argue that we are in the employee experience economy. The talent war is over—talent won, and as a result, if we do not take care of our best and brightest people, another company will. And if you take care of your employees and they feel good about who they work for and what they do, they will naturally take care of your customers anyway.
  • Employees (especially young ones) don’t work hard anyway, so why give them more? The reality is this generation, just like previous generations, have the capacity to work very hard; it’s just that the new generation of workers don’t see the value in investing in a business that doesn’t invest in them.
  • The employees will just leave anyway. To this I say: maybe they will, but if you want any chance to keep your best and brightest, you need to provide them a better employee experience than they received in the past.

If you are focused on profits and productivity (and let’s face it, who isn’t?), then you must be willing to deliver a better employee experience to positively impact the mindset and attitude of your people coming to work. Culture is the most important thing in business today, so every owner, executive, and manager must keep it front and center in everything they do.

Remember what author Stephen Covey said: “The main thing is to keep your main thing the main thing.” Make culture your main thing.

Additional resources

Photo Credit: Françoise Challard Flickr via Compfight cc

 

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